On July 13th, Germany's annual inflation rate for June was 2.3%, aligning with the preliminary figure and marking a further decline from May's 2.6%. This represents the lowest level since February of this year. The data indicates that price pressures in Germany continued to ease towards the end of the second quarter, although persistent stickiness in service prices and stagnant core inflation remain. A breakdown of the data shows that a notable cooling in goods prices was the primary driver behind the overall inflation slowdown. The goods inflation rate for June dropped to 1.7% from 2.2% in May. Within this category, the year-on-year increase in energy prices narrowed significantly from 6.6% to 3.4%, exerting a substantial downward pull on overall prices. However, there was a divergence within energy costs: motor fuel costs rose 11.3% year-on-year, down from the previous 18.0% but still in double-digit growth, while heating oil prices climbed 29.4% year-on-year, also lower than the prior 47.9%. This suggests that while pressure on household energy expenditures has eased somewhat, it has not been fundamentally eliminated.
Furthermore, despite clear internal divisions within the Federal Reserve regarding the future path of interest rates, market traders on prediction markets overall still lean towards the view that the Fed could implement further rate hikes this year. The latest data from prediction market platform Kalshi shows that, as of now, traders assign approximately a 54% probability to the Fed raising rates by the end of this year, slightly down from 56% the previous day. Concurrently, the market estimates a roughly 62% chance of a rate hike by July 2027, and the probability approaches 80% for a hike by 2028. Kalshi has launched multiple prediction contracts regarding the timing of the Fed's next rate hike, allowing bets on whether a hike will occur by the end of this year, by July 2027, or by 2028, with each contract settling once its corresponding time condition is met.
Key data to watch today includes Canada's National Economic Confidence Index for the week ending July 10th, Germany's unadjusted current account balance for May, and the US New York Fed's 1-Year Inflation Expectations for June.
US Dollar Index
The US Dollar Index experienced choppy trading last Friday, closing with a slight gain on the daily chart. The spot rate is currently hovering around 101.10. In addition to short covering providing some support, the lingering expectation of Federal Reserve interest rate hikes was also a significant factor helping the dollar index halt its decline and stabilize. However, the recent Fed policy decision, which revealed significant internal divisions, limited the index's rebound potential. Today, focus will be on resistance near 101.50, with support found around 100.50.
Euro/US Dollar
The Euro traded lower last Friday, closing with a modest loss on the daily chart. The spot rate is currently around 1.1390. Aside from profit-taking exerting some downward pressure, the stabilization of the US Dollar Index, supported by short covering and persistent Fed rate hike expectations, also weighed on the Euro. Nonetheless, the release of German CPI data during the session, which met market expectations, limited the pair's downside. Attention today is on resistance near 1.1500, with support around 1.1300.
British Pound/US Dollar
The British Pound traded in a narrow range last Friday, closing marginally lower on the daily chart. The spot rate is currently near 1.3380. Profit-taking contributed to some selling pressure, and the stabilization of the US Dollar Index also exerted a dampening effect on the Pound. However, reduced concerns over UK political uncertainty and expectations for a Bank of England rate hike within the year limited the extent of the pair's pullback. Today, watch for resistance around 1.3450, with support situated near 1.3300.
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